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GDF-Suez: Why are European industries restructured?

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The bringing together of the two great energetic groups has as a main objective: to create a giant of a European energy leader in this market. The project had already been considered under the Jospin government. The threat of a public offering purchase (tender offer) of the number one Italian electricity company, Suez, in February 2006 accelerated the process. Indeed, Gaz de France seeks to diversify its activities beyond gas, to extend them out of the Hexagon and to grow in the facade to face its European competitors, like the German E.ON or the Italian ENI.

As for Suez, it is the heiress of Lyons water, actor of foreground on a global level of water treatment and waste. But it rather conceives its future in the energy sector. Its subsidiary company Electrabel, the first supplier of electricity in Belgium, is tapering in the Belgian market and wishes to extend its activities in the territory of its head office, France. Their fusion would create another European leader of gas and electricity, with a market cap exceeding the 70 billion Euros. The new entity could propose to the 12.5 million customers of GDF an offer of gathering supply of gas and electricity and being essential like a serious competitor of EDF.

The pair GDF and Suez will become the third biggest European energy group with an accumulated turnover of 64 billion Euros and will be classified even at the second rank by its market cap (approximately 72 billion), just behind EDF (84 billion). Also, GDF will have a privileged access into the market of the Belgian nuclear power of Electrabel and stoppings of the Rhone.

In exchange, it offers to Suez its terminal methane tankers, its factories of liquefaction, its storage and its important domestic customers. The markets initially applauded this bringing together beside the reason that the two groups prove to be very complementary: one is present in France, whereas the other is more an international one. Once positioned in the row of the world giants, the future energy group awaits this fusion of the advantages in terms of financial means and organization.

The expected target for a merger is looking for synergy produced by the pooling of the two entities. Indeed, synergy creates a value greater than the sum of two eigen values of the company, that is to say that "1 +1 = 3". A synergy is thus a creation of values.

The directions of the two groups GDF and Suez expect their merger of 500 million euros to "operational synergies" in the first three years, supplemented further by 500 million euros related to the "additional costs and optimization programs investment.?

According to Jean-Louis Chaussade, CEO of Suez Environment, "water meters and gas are the same place, our 116 and 000 kilometers of pipe networks, water flowing into the ground alongside those of SFM. Both companies have similar risks to be managed, the same need for knowledge of the subsoil and the same problem, sending billing.? Thus, the merger would eliminate duplication and thus achieve substantial savings in terms of networks, equipment and employees.

Tags: GDF ? Suez, restructuring of European industries, European energy group

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